Free Articles

More Evidence This Is The Golden Bottom

When precious metals struggle, investors favor bullion over stocks. It is sensible: the gold price can fall but cannot go to zero, while stock prices most certainly can. Thus bullion is safer.

As a result, the ratio of gold equities to the price of gold falls in a weak market. In 2001, the post Bre-X low, the ratio dipped to about 0.16. Over the next six years, during gold's best bull market ever, it averaged twice that.

Then in the 2008 crisis the ratio again crashed, falling below 0.08. Over the subsequent 20-month recovery it almost doubled.

Today, following gold's three-year slide, the gold equities-to-gold price ratio is just 0.05 – far below either of those bottoms. Gold equities are as friendless as they have ever been.

However, the gold price is rising – and setting up for a bull run, because production can't meet demand in the medium term and fiat currency questions abound.

The disjoint means investors have to return to gold equities at some point, because if the market wants more gold it has to support the publicly traded companies who discover, develop, and produce the yellow metal.

The astute John Embry, chief portfolio strategist at Sprott Asset Management, agrees. In a recent interview Embry said the ratio of equities values to the price of gold is the lowest he has seen. He sees now as incredible opportunity to invest in mining because valuations are so low relative both to other investing opportunities and to history.

"I don't think I've ever seen, in the 40-plus years I've been following the sector, the shares cheaper in relation to the price of bullion as they are now," Embry said. He continued, noting that current mining share prices represent "…an historic opportunity."

"Bonds and stocks are grotesquely overpriced and I think gold and silver and mining shares in particular are ridiculously underpriced. Those who figure that out when the inflection point [arrives] are going to make a fortune."

It is also very interesting that trading volumes in junior gold miners ramped up dramatically in the last few months of 2014. Why? Because exhausted investors chose to book tax credits and sold at significant losses…to buyers who had been waiting for the bottom to buy in.

As Clive Maund says rather bluntly within the above graphic, borrowed from his article It Could Not Look Better for the PM Sector Going Into 2015, the enormous volume in the fourth quarter suggests a pretty massive transfer of stock from weak to strong hands.

These strong hands don't plan to sell until they have turned a profit. And I posit they expect profits to come in two waves.

The first is already underway. It is seasonality: the simple fact that the Venture market reliably puts in its best performance of the year between mid-December and mid-March.

Experienced resource investors know all about seasonality. Strong share performance to start the year is a fact of life in the mining sector; in bear markets, seasonality can be the only reliable opportunity to turn a profit. As such, practiced hands were already planning to buy depressed stocks at the end of tax loss selling season, in anticipation of a quick gain.

This year they bought more than usual: once gold bottomed in early November consensus started to build that the worst of the mining bear market is over, giving seasonal players reason to believe the January effect will be amplified this year. So far, so good: the Gold Miners ETF (GDX) is up more than 20% since mid-December while the Junior Gold Miners ETF (GSXJ) is up more than 30%.

The second wave is the real recovery. However, even if the worst is over, the best is still a ways off.

The real recovery will not establish until after the summer doldrums at the earliest, which means a good chunk of the smart money that moved in over the last few months will lock in gains and leave again at the end of the first quarter, with plans to enter again in late summer. I plan to do so with some of my holdings, to be sure – especially those that are already up 30% to 55% in a few weeks.

A quick 40% or 50% gain is great – but re-entering these stocks after the summer will be essential because the real recovery will offer the chance for far greater gains.

To make money in this lull between the bear and the bull requires a different approach. I would love to always rely on the same investing system – buy undervalued stocks and hold them until the market figured it out – but that only works in a functional market.

Today's market ain't functional. It is on life support. It will survive but, until it does, Buy and Hold won't work. This year, moving in and out of stocks based on the time of year, geopolitical events, company-specific news, and metal market developments will be the only way to get ahead.

To learn how to turn resource knowledge into investment success: subscribe to Resource Maven: The Turning Point.

EDITORIAL POLICY AND COPYRIGHT: Companies are selected based solely on merit; fees are not paid. This document is protected by copyright laws and may not be reproduced in any form for other than personal use without prior written consent from the publisher.

DISCLAIMER: The information in this publication is not intended to be, nor shall constitute, an offer to sell or solicit any offer to buy any security. The information presented on this website is subject to change without notice, and neither Resource Maven (Maven) nor its affiliates assume any responsibility to update this information. Maven is not registered as a securities broker-dealer or an investment adviser in any jurisdiction. Additionally, it is not intended to be a complete description of the securities, markets, or developments referred to in the material. Maven cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. Additionally, Maven in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned. Furthermore, Maven accepts no liability whatsoever for any direct or consequential loss arising from any use of our product, website, or other content. The reader bears responsibility for his/her own investment research and decisions and should seek the advice of a qualified investment advisor and investigate and fully understand any and all risks before investing. Information and statistical data contained in this website were obtained or derived from sources believed to be reliable. However, Maven does not represent that any such information, opinion or statistical data is accurate or complete and should not be relied upon as such. This publication may provide addresses of, or contain hyperlinks to, Internet websites. Maven has not reviewed the Internet website of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the convenience and information of this website's users, and the content of linked third-party websites is not in any way incorporated into this website. Those who choose to access such third-party websites or follow such hyperlinks do so at their own risk. The publisher, owner, writer or their affiliates may own securities of or may have participated in the financings of some or all of the companies mentioned in this publication.

Recent Posts


"Gwen - I just analyzed our returns for the past month. We had a 36.7% return on our portfolio in one month! Thank you so much for your excellent, thoughtful and timely guidance. 12 of the 18 stocks in my portfolio were recommended by you. 4 were recommended by other MIF letter writers and 1 each by Eric Sprott and Rick Rule. Yes it was a good month for precious metals - Gold was up $50 and Silver $3.90 - but “our" portfolio performance more than doubled the 16% of the GDXJ"


-WJ (June 1, 2020)

Peter, I wanted to take a moment and thank you for your excellent work and insights. Amazingly, about a week before SVB's collapse, I had found your book The Great Silver Bull and devoured it. Since then, I first became a monthly and now an annual subscriber to your Silver Stock Investor newsletter—fantastic work throughout!

In the simplest language I can muster... prior to getting interested in precious metals investing, my investments were wallowing... and now they're not. I'm re-engaged in my investment journey again, and your calm, clear voice in a space inhabited by many yellers, screamers, and doomsdayers makes all the difference.

--KH (May 2023)